BRIBERY SCANDAL AT SIEMENS AG Abstract:
This case discusses the bribery scandals that were unearthed at Siemens AG (Siemens) in 2006 and 2007. There were a series of scandals that involved some of the company's employees bribing foreign officials to gain contracts and creating slush funds for this purpose. In another case, the company was accused of bribing labor representatives on the supervisory board in order to gain their support for its policies. After the German authorities conducted raids on in Germany, investigations were initiated on Siemens in several other countries like the US, Greece, Italy and Switzerland for possible misconduct. As a fallout of this scandal, the CEO of the company, Klaus Kleinfeld, and the chairman of the supervisory board, Heinrich von Pierer, had to resign even though they were not directly implicated. With bribery scandals surfacing in Siemens and many other German companies like Volkswagen, questions were also raised about the effectiveness of the Co-determination law in Germany, which advocated a system in which a supervisory board governed the management board and at least half the supervisory board seats had to be filled by labor representatives. In such a system, critics contended that the management always needed the labor representatives' support to be in job and gain support for company policies, which led to a suspicious alliance between them. The case also highlights the opinions of several analysts on the issues related to bribing by the German companies and Siemens in particular and the challenges the new CEO is likely to face at Siemens. S iemens. Introduction
In December 2008, the Munich, Germany-based Siemens AG (Siemens) agreed to pay fines to the tune of ¼1 billion towards settlement of corruption charges that had hit the company since 2006. This included a record US$800 million fine imposed by the US authorities and another ¼395 million imposed by German authoriti author ities. es. This ¼1 billion was in addition to the billions of Euros that it paid in fines, back taxes and late interest charges by 2007.4 Peter Loescher (Loescher), who joined as the CEO of Siemens in 2007, following the major bribery scandal that broke out in the company, said, "We regret what happened in the past. But we have learned from it and taken appropriate measures. Siemens is now a stronger company."5 On May 14, 2007, a German court convicted two former managers of Siemens AG (Siemens) for diverting the company's money to bribe employees of Enel SpA6 (Enel), an Italian energy company.7 Both the former managers admitted that they had bribed employees at Enel who had demanded money in return for contracts. They also said that they had not done anything wrong as they did it for the benefit of the company and not for any personal gain. Moreover, there was no other way to win contracts in several countries abroad where bribing for contracts was a common practice, they said... Background Note
Siemens was initially started as Telegraphen-Bauanstalt von Siemens & Halske (S iemens & Halske) in 1847 by Werner von Siemens (Werner) and a mechanical engineer, Johann Georg Halske (Halske)... A Series of Scandals Rocks Siemens
Slush funds to win contracts abroad On November 15, 2006, around 30 offices and private homes related to Siemens and its employees were raided by some 200 police officers, tax inspectors and prosecutors in Munich, and other cities of Germany, to probe suspicions of bribery, embezzlement of company funds and tax evasion... Repercussions of the Scandals
The series of bribery allegations came in the a ftermath of Siemens' sale of its loss-making mobile handset unit in 2005, to a Taiwanese company, BenQ. Here too, Siemens did not cover itself in glory as it was seen as having got rid of the unit because it could not easily lay off its employees... Initiatives at Siemens
After the bribery scandals were unearthed at Siemens, the company started many initiatives to strengthen its corporate governance and co mpliance controls. A law firm Debevoise & Plimpton LLP (Debevoise & Plimpton) was appointed to conduct an independent and comprehensive investigation into the company's compliance and control system with the help of the independent auditor for Siemens, KPMG... Questions Relating to Ethics in Corporate Germany
Around the same time as the S iemens cases came out, unethical practices surfaced in ot her German companies including Volkswagen AG (Vo lkswagen), Deutsche Telekom AG, Deutsche Bahn AG and Deutsche Post AG. At Volkswagen, a senior executive was fined ¼576,000 and received a suspended prison sentence in January 2007 for bribing labor representatives with money, foreign trips and prostitutes. Since several of the corruption scandals involved the bribing of labor representatives on t he boards of German companies, some analysts felt that the Co-determination law or Mitbestimmung in Germany was flawed... Outlook
Analysts opined that on account of increasing competition, companies were resorting to illegal payments to win international contracts especially in some emerg ing economies where the practice was common. Siemens along with many other companies was found guilty of paying bribes to secure contracts abroad... Issues:
Understand the impact of the bribery scandals unearthed at Siemens AG on the company and the economic climate in Germany »
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Discuss the role of the co-determination law in the bribery scandals that surfaced in German companies »
"Based on our investigation so far, we have reason to suspect that Siemens ran 'black accounts' ... that allowed it to open new markets through secret payments to potential and existing business 1 partners." -
Jeanette Balmer, a spokeswoman for the office of the Swiss federal prosecutor, in 2006. 2
"Many people within Siemens knew about the method of payment. Getting a contract isn't easy." -
Horst Vigener, former Siemens employee convicted in a bribery case, in 2007.
"What hopefully will come out of the Siemens affair ... is that senior business leaders, when they see what happens to Siemens in terms of fines and the lost reputation of individuals like von Pierer or 3 Kleinfeld, is that they will say 'OK, we need to start taking this seriously'." -
Jermyn Brooks, director of private sector programs at Transparency International, in 2007.
4] Heide B. Malhotra, "Siemens Looks for New Beginning after Bribery Scandals," http://en.epochtimes.com, March 27, 2008. 5] "Siemens Bribery Fines Top 1 Billion Euros," www.dw-world.de, December 15, 2008. 6] Enel SpA (Enel) was Italy's l argest power company. Enel produced and sold electricity mostly in Europe, North, and Latin America. Enel was one of the l argest distributors and vendors of natural gas in Italy, with a 12% market share. The company's revenues stood at 38.5 billion euros for the year 2006. (Source: www.enel.it). 7] "Former Siemens Managers Convicted of Paying Bribes," www.dw-world.de, May 14, 2007
Case Details:
Case Code Case Length Period Pub Date Teaching Note Organization Industry Countries
Price:
: : : : : : :
BECG106 18 Pages 2006-2009 2010 Available Siemens AG Diversified : Germany
For delivery in electronic format: Rs. 300; For delivery through courier (within India): Rs. 300 + Rs. 25 for Shipping & Handling Charges Themes
Business Ethics Corporate Governance
